Michael Pollitt, Cambridge Judge Business School
So, there might be enough gas in Britain to supply us for 20 years, but will this actually lower our energy bills? Dominic Ford went to speak to Mike Pollitt from the Cambridge Judge Business School.
Mike - Electricity generation fears as the energy policy trilemma which is, how do we provide low cost energy which is low carbon and which is secure? So, the challenge is, how do you decarbonise electricity generation while maintaining energy security and while delivering reasonably low prices?
Dominic - And by energy security, you mean making sure that we keep the lights on in essence?
Mike - In the electricity sector, yes. Energy security is about keeping the lights on at a reasonable price because the lights will probably always stay on, but the question is, at what cost they stay on.
Dominic - So, why is that going to be a problem particularly in the next decade or so? Is that does because of dwindling fossil fuel supplies or because of problem with the power stations themselves?
Mike - Well, I think the immediate problem for the UK has been the large combustion plant directive which has meant that we’ve had to shut a significant number of our large coal fired power plants and that has meant that we’ve had to replace them with gas fired power plants. And that process was doing very well until quite recently when the government has begun talking about electricity market reform which is a major reform of how low carbon electricity generation is subsidised in the UK.
Dominic - So, why are we favouring gas fired power stations over coal?
Mike - Well, we’re favouring gas over coal because coal is relatively dirty in terms of greenhouse gases relative to gas because until recently, gas fired power stations were cheaper than coal fired power stations. So, putting those two things together has meant that gas fired power production has been the choice that electricity companies make when they're making new generation investments.
Dominic - How does fracking enter into that debate? Is this about making sure we’ve got enough gas to keep those power stations running?
Mike - No. I don’t think fracking has got really anything to do with the security of supply debate in electricity because the electricity - problem if there's going to be one - will manifest itself in the next 2 to 5 years. Fracking is all about gas supplies in 10, 15, 20 years time. The other thing is that the UK is heavily integrated into the European gas market. So anything that happens in terms of UK gas production has to be seen in the context of that. And what that means is that basically, we have to look at the size of the discoveries of fracked gas in the UK in the context of the market into which those supplies will be sold. That may have some impact on the price, but that depends on the size of discoveries. The main impact from an economic point of view will be clearly the UK will be able to sell that gas and simply increase its GDP as a result of producing more gas.
Dominic - In the US, there's been talk of fracking bringing down energy prices quite dramatically because they've been able to be much more self-sufficient in their gas supply. Do you envisage that also happening in the UK?
Mike - Well, the US is very interesting because what's happened is that in a very short space of time, the fracked gas has gone from being insignificant to being about 25% of the gas that's consumed in the US. Now, the sorts of numbers that are being talked about in the UK at the moment are small even in relation to the UK’s current consumption of gas. They'd be even smaller in the context of the European gas market. So, the likelihood that they would as significantly impact on the price of gas for domestic gas consumers or for gas for power stations is unlikely I think anytime soon.
Dominic - Could it be a boost for the UK economy?
Mike - Yes. I think gas is of course a very valuable commodity and there are 150 billion cubic metres of gas that the British Geological Survey has talked about recently. It’s only about 1 ˝ year supply of gas that's consumed in the UK, but it’s still worth say, 30 billion pounds and of course, 30 billion pounds isn’t to be turned down lightly.
Dominic - The environmental campaigners would say that we need to be getting off fossil fuels. We shouldn’t be renewing our fossil fuel power stations. We should be building more windmills and solar farms. Do you think that's a realistic prospect?
Mike - Clearly, we are building a lot more low carbon generation. I think even if the most optimistic scenarios happen for renewables and nuclear, we’re still going to need fossil fuels to meet all of our electricity demands and of course, to provide the flexible generation which is needed when the wind doesn’t blow or the sun doesn’t shine.
No, if anything it will drive them up as companies will protest that the cost of extracting and processing it remains high, and the fact that NIMBYism will end up making every single site cost 2-3 times as much as it should.
Why should anyone reduce retail prices? The retail suppliers are marketers only - they have no interest in exploration, production or transmission, so they all pay pretty much the same unit price for the stuff they resell since all the producers supply all the resellers through a single grid. Whatever comes out of the ground will be subject to a ridiculous "renewables levy" so that wind farmers can make a profit even when they are not generating electricity, and the retailers are all multinationals with no interest in local competition anyway.
Presumably the increased availability of natural gas due to fracking has reduced natural gas prices in parts of the USA. Since I don't buy natural gas, I don't see it.
The situation viz-a-viz fracking in the US and fracking in the UK are totally different. The US has vast areas of sparsely populated land to use the UK by contrast has very little land all of it pretty densely populated and although right now plenty of fresh water may be available that might not always be the case. Billions of tons of fresh water are needed for fracking, the only thing is that by the time it goes into the ground it is no longer fresh water, chemicals have to be mixed into it both to reduce its frictional co-efficient ( yes I am not kidding) and all kinds of biocides (germicides too)that will kill of any kind of plant or or growth that may block up the fissures that fracking creates. If you think that won’t affect the water tables, dream on friend. Fracking is a horror story and I am truly surprised and dismayed that we have come to the point of even discussing its deployment in the UK. McQueen, Tue, 1st Oct 2013